BILL NUMBER: AB 2218 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY MAY 17, 2006
AMENDED IN ASSEMBLY MAY 2, 2006
INTRODUCED BY Assembly Member Torrico
( Coauthors: Assembly Members
Klehs and Lieu )
FEBRUARY 22, 2006
An act to add and repeal Section 6377 of the Revenue and Taxation
Code, relating to taxation, to take effect immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
AB 2218, as amended, Torrico Sales and use taxes: exemption:
manufacturing equipment.
The Sales and Use Tax Law imposes a tax on the gross receipts from
the sale in this state of, or the storage, use, or other consumption
in this state of, tangible personal property and provides various
exemptions from the taxes imposed by that law.
This bill would declare the intent of the Legislature to exempt
from those taxes the sale of, and the storage, use, or other
consumption of, manufacturing equipment used in the manufacturing
process.
The bill would further exempt from those taxes, for calendar years
beginning on or after January 1, 2007, the gross receipts from the
sale of, and the storage, use, or other consumption of, tangible
personal property, as defined, purchased for use by a qualified
person, as defined, in manufacturing, processing, refining,
fabricating, or recycling of property, and introduced into the
process, as specified, and tangible personal property purchased for
use by a contractor for specified purposes.
This bill would specify that this exemption does not apply to
local sales or transactions and use taxes.
This bill would also specify that the exemption would remain in
effect only for 10 calendar years after it first becomes operative,
and would be repealed on January 1 of the first calendar year
thereafter.
This bill would take effect immediately as a tax levy.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. It is the intent of the Legislature to enact a Job
Retention and Economic Recovery Act that would provide for an
exemption of purchases of manufacturing equipment used in the
manufacturing process from the state sales and use taxes.
SEC. 2. Section 6377 is added to the Revenue and Taxation Code, to
read:
6377. (a) (1) For calendar years beginning on or after January 1,
2007, there are exempted from the taxes imposed by this part the
gross receipts from the sale of, and the storage, use, or other
consumption in this state of, any of the following:
(A) Tangible personal property purchased for use by a qualified
person to be used primarily in any stage of the manufacturing,
processing, refining, fabricating, or recycling of property,
beginning at the point any raw materials are received by the
qualified person and introduced into the process and ending at the
point at which the manufacturing, processing, refining, fabricating,
or recycling has altered property to its completed form, including
packaging, if required.
(B) Tangible personal property purchased for use by a contractor
purchasing that property either as an agent of a qualified person or
for the contractor's own account and subsequent resale to a qualified
person for use in the performance of a construction contract for the
qualified person who will use the tangible personal property as an
integral part of the manufacturing, processing, refining,
fabricating, or recycling process, or as a storage facility for use
in connection with the manufacturing process.
(2) This exemption shall not apply to any tangible personal
property that is used primarily in administration, general
management, or marketing.
(b) For purposes of this section:
(1) "Fabricating" means to make, build, create, produce, or
assemble components or property to work in a new or different manner.
(2) "Manufacturing" means the activity of converting or
conditioning property by changing the form, composition, quality, or
character of the property for ultimate sale at retail or use in the
manufacturing of a product to be ultimately sold at retail.
Manufacturing includes any improvements to tangible personal property
that result in a greater service life or greater functionality than
that of the original property.
(3) "Primarily" means tangible personal property used 50 percent
or more of the time in an activity described in subdivision (a).
(4) "Process" means the period beginning at the point at which any
raw materials are received by the qualified taxpayer and introduced
into the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified taxpayer and ending at the point
at which the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified taxpayer has altered tangible
personal property to its completed form, including packaging, if
required. Raw materials shall be considered to have been introduced
into the process when the raw materials are stored on the same
premises where the qualified taxpayer's manufacturing, processing,
refining, or recycling activity is conducted. Raw materials that are
stored on premises other than where the qualified taxpayer's
manufacturing, processing, refining, fabricating, or recycling
activity is conducted, shall not be considered to have been
introduced into the manufacturing, processing, refining, fabricating,
or recycling process.
(5) "Processing" means the physical application of the materials
and labor necessary to modify or change the characteristics of
property.
(6) "Qualified person" means any of the following:
(A) A person who is primarily engaged in those lines of
business described in Codes 3111 to 3399, inclusive, or 5112 of the
North American Industrial Classification System (NAICS) published by
the United States Office of Management and Budget (OMB), 2002
edition.
(B) An affiliate of a person qualified pursuant to subparagraph
(A) shall also be considered a qualified person as long as the
affiliate is included as a member of that person's unitary group for
which a combined report is required to be filed under Article I
(commencing with Section 25101) of Chapter 17.
(7) "Refining" means the process of converting a natural resource
to an intermediate or finished product.
(8) "Tangible personal property" does not include any of the
following:
(A) Consumables with a normal useful life of less than one year,
except as provided in subparagraph (E) of paragraph (10)
(9) .
(B) Furniture, inventory, and equipment used in the extraction
process, or equipment used to store finished products that have
completed the manufacturing process.
(9) "Tangible personal property" includes, but is not limited to,
all of the following:
(A) Machinery and equipment, including component parts and
contrivances such as belts, shafts, moving parts, and operating
structures.
(B) All equipment or devices used or required to operate, control,
regulate, or maintain the machinery, including, without limitation,
computers, data processing equipment, and computer software, together
with all repair and replacement parts with a useful life of one or
more years therefor, whether purchased separately or in conjunction
with a complete machine and regardless of whether the machine or
component parts are assembled by the taxpayer or another party.
(C) Property used in pollution control that meets or exceeds
standards established by this state or any local or regional
governmental agency within this state.
(D) Special purpose buildings and foundations used as an integral
part of the manufacturing, processing, refining, or fabricating
process, or that constitute a research or storage facility used
during the manufacturing process. Buildings used solely for
warehousing purposes after completion of the manufacturing process
are not included.
(E) Fuels used or consumed in the manufacturing process.
(c) (1) No exemption shall be allowed under
this section unless the purchaser furnishes the retailer with an
exemption certificate, completed in accordance with any instructions
or regulations as the board may prescribe, and the retailer
subsequently furnishes the board with a copy of the exemption
certificate. The exemption certificate shall contain the sales price
of the machinery or equipment that is exempt pursuant to subdivision
(a).
(2) Beginning for calendar year 2008, in order to maintain
eligibility for the exemption under this section, the qualified
person shall provide to the board evidence of the following:
(A) The number of employees employed in the state during the first
quarter of 2007.
(B) For calendar years 2008 to 2017, employs the same number or a
greater number of employees in the state than the first quarter of
2007 during the first quarter of the current year and reports those
numbers to the board on or before May 1 of the current year.
(3) All employment numbers reported to the board under this
subdivision shall be the same as the number reported to the
Employment Development Department on the first quarter Quarterly Wage
and Withholding Report (DE-6).
(4) If a qualified person becomes ineligible during the current
fiscal year due to failure to timely report or due to decreases in
the number of employees employed by the qualified person, then that
qualified person shall reimburse to the board any exemption taken
under this section during that current calendar year, but shall not
be required to pay back exemptions taken under this section in
previous years of eligibility. The qualified person may become
eligible in future calendar years if employment numbers are above
those reported for the first quarter of 2007, and the qualified
person satisfies other reporting requirements.
(d) Notwithstanding any provision of the Bradley-Burns Uniform
Local Sales and Use Tax Law (Part 1.5 (commencing with Section 7200))
or the Transactions and Use Tax Law (Part 1.6 (commencing with
Section 7251)), the exemption established by this section shall not
apply with respect to any tax levied by a county, city, or district
pursuant to, or in accordance with, either of those laws.
(e) (1) Notwithstanding subdivision (a), the exemption provided by
this section shall not apply to any sale or use of property which,
within three years from the date of purchase, is either removed from
California or converted from an exempt use under subdivision (a) to
some other use not qualifying for the exemption. The taxpayer
that has received the exemption under this section for purchasing
qualifying personal property shall notify the board if the property
is either removed from California or converted from an exempt use
under subdivision (a) within three years from the date of purchase.
(2) Notwithstanding subdivision (a), the exemption established by
this section shall not apply with respect to any tax levied pursuant
to Sections 6051.2 and 6201.2, or pursuant to Section 35 of Article
XIII of the California Constitution.
(f) If a purchaser certifies in writing to the seller that the
property purchased without payment of the tax will be used in a
manner entitling the seller to regard the gross receipts from the
sale as exempt from the sales tax, and within one year
three years from the date of purchase, the
purchaser (1) removes that property outside California, (2) converts
that property for use in a manner not qualifying for the exemption,
or (3) uses that property in a manner not qualifying for the
exemption, the purchaser shall be liable for payment of sales tax,
with applicable interest, as if the purchaser were a retailer making
a retail sale of the property at the time the property is so removed,
converted, or used, and the sales price of the property to the
purchaser shall be deemed the gross receipts from that retail sale.
(g) This section applies to leases of tangible personal property
classified as "continuing sales" and "continuing purchases" in
accordance with Sections 6006.1 and 6010.1. The exemption established
by this section shall apply to the rentals payable pursuant to such
a lease, provided the lessee is a qualified person and the property
is used in an activity described in subdivision (a). Rentals
that meet the foregoing requirements are eligible for the exemption
for a period of six years from the date of commencement of the lease.
At the close of the six-year period from the date of commencement of
the lease, lease receipts are subject to tax without exemption.
(h) This section shall remain in effect only for 10 calendar years
after this section first becomes operative, and shall be repealed on
January 1 of the first calendar year thereafter.
SEC. 3. This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.